Seeds Sown for Major Transatlantic Trade War Starting in May
Trump has made a considerable number of trade threats only to eventually back down. Will it play out that way again?
For a number of reasons, I think Trump will act this time. First, let's look at the threats.
On February 25, Trump told the EU Play Ball or ‘We’re Going to Tariff the Hell Out of You’
"The European Union is very, very tough. Very, very tough. They don’t allow our products in. They don’t allow our farming goods in," Trump said at a meeting with U.S. governors, according to a transcript from the White House. He added that "maybe, in certain ways," the EU is "tougher than China."
Partial Agreement Won't Fly
On April 15, Reuters reported EU Ready to Launch U.S. Trade Talks, but Without Agriculture.
The EU approved two areas for negotiation, opposed by France with an abstention from Belgium. But agriculture was not included, leaving the 28-country bloc at odds with Washington, which has insisted on including farm products in the talks.
EU trade agreement are unanimous. Tiny countries can and have influenced outcomes. It took over a decade to get an agreement with Canada over concerns of tiny nations.
Even if US-EU trade talks take place, nothing will come of them and Trump will quickly get frustrated.
Climate Change Now in the Picture
On April 18, France has signaled it will not cooperate with Trump in any way.
Please consider the new French demand: No EU-US Trade Talks Unless Trump Supports Climate Deal.
Earlier this week, the European Union agreed to start trade talks with the United States on industrial goods. France, however, has objected to the decision while Belgium abstained. In Paris, the concern is that there cannot be any agreement over trade while the U.S. refuses to commit to key environmental targets.
“France is opposed to the initiation of any trade negotiations with countries outside the Paris climate agreement,” a French official said Monday, explaining why the second largest euro country said no to trade negotiations with Washington.
“It is a question of values. Europe must be exemplary and firm in its defense of the climate,” the same official said.
Uri Dadush, a Washington-based scholar for the think tank Bruegel, told CNBC: “I believe France and others less prominently visible than France and which are net beneficiaries of the Common Agricultural Policy (Italy, Spain, for example) will veto discussion of agriculture trade reforms.”
“This will make it even tougher for the U.S. to accept a deal, and I suspect that President Trump was not adequately briefed or ignored his brief when he agreed with (European Commission) President Juncker to omit agriculture,” he added.
Trade Talks Going Nowhere
Even without the absurd demand on climate change, trade talks with the EU are going nowhere.
Not Just Trump Holding Up Talks
One difference this time is that it isn't just Trump threatening the EU.
It would be rather silly to report the EU Council’s decision to open limited trade talks with the US without noting the immediate cool response on the other side of the Atlantic. The first reaction did not come from Donald Trump - who was busy giving technical advice to French firefighters - but from Chuck Grassley, the chair of the US Senate's finance committee. He immediately dismissed the decision by the EU Council to open up trade negotiations with the US, making it clear that no deal would pass the Senate without including agriculture.
Trade policy with Europe is not a matter where Congress and the White House are divided. It is our understanding that Trump’s closest advisers are all expecting the president to slap tariffs on European auto imports.
The French opposition, together with that expressed earlier by the European Parliament, does bot bode well for future EU adoption of even a limited trade deal with the US. The trade talks need only a qualified majority to be launched, but unanimity of member states and a majority in the EP to be ratified.
We have been observing a definite hardening of French positions in a variety of issues, including trade and the Brexit extension. Last week France blocked an EU statement on Libya. It will be interesting to see whether Emmanuel Macron’s readiness to assert himself more strongly will survive the European elections.
Chuck Grassley, head of the Senate Finance Committee is from Iowa, an huge farm-belt state. Grassley will insist agriculture be part of any trade deal.
Trump will listen to Grassley and the trade hawks.
Major Transatlantic Trade War Coming Up
Trump's position is somewhat logical (if you foolishly believe tariffs are an answer).
The EU runs a massive trade surplus with the US in industrial goods. Eliminating tariffs on industrial goods would likely increase that surplus.
There is one tried and true way to get Trump to back down: Give in on some minor point then agree to buy more soybeans.
However, the EU is not going to buy more soybeans, GMO products in general, or chlorinated chicken.
Instead, Macron taunted Trump with a huge red flag issue regarding climate change.
Trade War in May
The Commerce Department presented a report on auto imports in mid-January. Supposedly, auto imports are a threat to US national security. That's absurd, but it allows "tariff man" to do whatever he wants.
The deadline for Trump to make a decision on EU tariffs is mid-May.
Trump is set to sign a trade deal with China in late May or early June. Expect Trump to finalize a meaningless deal with China, then start a major trade war with the EU.
Mike "Mish" Shedlock